Neil Pamplin is a tax director at Grant Thornton and works on the Gateway2Investment (g2i) programme which prepares technology businesses for funding. He knows well the views of both entrepreneurs and investors, so we caught up with him to find out if the chancellor has dampened the UK’s entrepreneurial spirit with his latest announcement on CGT.
What effect has the latest announcement (January 24) had on the entrepreneurial community?
I met with a serial entrepreneur this morning, a young man who has already bought and sold a number of businesses. He asked me this ‘does the chancellor really think that by giving me £80,000 over my lifetime he is offering any real incentive’? He also offered that it was a non-joined up policy for business put together as a reaction, not as a plan. His view could be viewed as jaundiced but I think that nicely sums up the feeling among the entrepreneurial community. Even allowing for the Northern Rock distraction, it has also taken far too long to get here it will be viewed as too little.
Has there been a rush to exit since the pre-Budget report?
I am not sure there has been a mad rush but it has been a factor. It has created an unnatural bubble which has come at a very difficult time. There may be an increasing number of sellers out there and a falling number of buyers who have a decreasing amount of funding.
Is this going to put off entrepreneurs?
What dampens the entrepreneurial spirit? If you are asking me whether in 2-3 years people will have become used to an 18% tax rate then I may answer ‘yes’. It is roughly the European average and is lower than income tax and taxes on dividends – so I don’t think it will put off the true entrepreneur altogether. But it is still a tax rise and that is not an incentive. A flat rate also does not distinguish between the true entrepreneur and an investor in say property assets which are traditionally viewed as less risky. I don't see the entrepreneur’s relief helping to any significant degree.
g2i entrepreneurs are planning to build enterprises that could really take-off and make a big impact. This is a community that aren’t going to adjust their plans to benefit from a £1m lifetime figure. I can not see it being an incentive or even a factor, in choosing the UK as a business location.
What about the impact on employees?
Technology businesses need to attract and retain top talent. Typically these businesses will offer share options as a part of the deal. Given the need for a 5% holding in the business to qualify for entrepreneurs' relief, it is unlikely that individual employees will qualify. Making share incentives less attractive doesn’t help the entrepreneurial cause.
Is it now going to be harder to gain funding?
There are of course a number of factors to be taken into account. A sound business plan with strong management and interesting technology will always attract funds. The story at the margins may however have just become harder to sell as angel investors are also unlikely to qualify for a 10% tax rate. This coupled with the continued restriction of the number of companies that qualify for EIS relief may well affect valuations.